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will need more time. Inflationary pressures
should take a while to build. The Fed’s Treasury
purchase programme runs out at the end of this
month and its programme to buy mortgage-
backed securities and agency debt expires at the
end of the first quarter. We do not expect the Fed
to act before then. The ECB will likely first lower
liquidity provisioning to banks. There is one
caveat though. Rapid increases in asset prices or
debt could force the Fed or the ECB to hike rates
earlier than after previous recessions.
Allocation: US equities
underweight trimmed, Japan
back at neutral (source: Fortis
Investments)
Investment climate: the global economy assets to comply with financing covenants. Internaxx Top ten buys and sells
continued to recover from the Great Recession. A Furthermore, European real estate has been –International Investors Activity
growing number of leading indicators is pointing heavily affected by the UK office market, which summary from Internaxx
to growth, several even to strong growth. Against has suffered badly in the credit crisis. We are
this backdrop, risky assets outperformed neutral on US real estate. The Top Ten buys and sells are measured as the
defensive asset classes. Equities rallied on the Investment-grade corporate bonds total number of trades carried out in each stock
back of the improving conditions. We raised our (overweight): while credit spreads have narrowed by Internaxx clients over the previous month.
exposure to an overweight position. notably from their peaks last year, they remain This report is not a recommendation to buy or
We are optimistic about the global economy in high from a historical perspective. In an sell these stocks.
the near term, expect a further shift out of low- uncertain and volatile environment, we like this
yielding cash or bonds and think company asset class for its relatively high carry, so we are
Top 10 November 2009
earnings could surprise to the upside in the third maintaining a large overweight position.
quarter when sales improve. Finally, there is no High-yield bonds (overweight): both the Top 10 Buy
inflation and monetary policy is extremely economic cycle and the outlook for corporate Company Market Sector
accommodative. profits have improved in our view. Anecdotal
1. Citigroup NYSE Finance
Regional allocation: in our rebalancing to an evidence shows that the ratio of earnings
2. ArcelorMittal Amst’m Steel
overweight in equities, we reduced our upgrades by analysts to downgrades is also
3. General Electric NYSE Conglomerate
underweight in US equities, but returned our looking better. According to central bank surveys,
4. AIG NYSE Insurance
exposure in Japan to neutral from overweight. bank lending conditions are being relaxed in the
5. Commerzbank Xetra Finance
6. Lloyds Banking LSE Finance
The improvement in Japan’s manufacturing major regions. High-yield bond prices have risen
7. BNP Paribas Paris Finance
sector has not spread to the local labour market in recent months, but with spreads still at
8. CIT Group NYSE Insurance
or wages so far. The foreign capital inflows we relatively high, recessionary levels, we see room 9. Bank of America NYSE Finance
had seen into Japanese equities proved to be a for further price gains. Finally, cash inflows into 10.Royal Bank of
false signal. Our largest equity overweight is in the asset class are relatively strong.
Scotland LSE Finance
emerging markets, which have recovered strongly Emerging markets bonds (overweight): we
from depressed levels. The next largest consider the asset class relatively attractive given
Top 10 Sell
overweight is in Europe. the aggregate current account surpluses of
Company Market Sector
Small-cap equities (overweight): for small-cap emerging countries, their falling external and
1. Citigroup NYSE Finance
stocks, we regard the near-term economic public debt ratios and their high foreign
2. General Electric NYSE Conglomerate
3. ArcelorMittal Amst’m Steel
outlook as positive, monetary policy as slightly exchange reserves. We are overweight in local
4. AIG NYSE Insurance
positive and the steep yield curve and liquidity currency emerging debt since we expect it to
5. Lloyds Banking LSE Finance
conditions as outright beneficial. Risk appetite outperform foreign currency debt. Yields are 6. Commerzbank NYSE Finance
among investors and market sentiment are higher in local currencies and there is room for 7. Royal Bank of
slightly positive in our view. The valuations of currency gains as a result of the improving
Scotland LSE Finance
small caps in absolute terms and relative to other fundamentals and monetary policies.
8. Natixis Paris Finance
asset classes are neutral. Convertible bonds (neutral): we prefer global
9. BNP Paribas Paris Finance
Real estate securities (neutral): real estate has convertible bonds to those from Europe. In our
10.La Mancha
performed even better than equities so far this view, there are more investment opportunities
Resources Toronto Mining
year. Momentum in this asset class has remained globally than in Europe, where cash-rich DISCLAIMER
positive, but we are cautious. Real estate equities companies do not need to issue convertibles. This document has been prepared solely for
may have started to price in too much optimism Commodities (overweight): commodity prices informational purposes and does not constitute an
about the economy, while the underlying rose on the whole in September. Crude oil prices offer to buy or sell, or a solicitation of an offer to
fundamentals of this market remain quite weak were mixed. Industrial metals prices declined, buy or sell any security or financial instrument, or
in our view. We are overweight Asian property but the prices of gold and agricultural any investment advice. Prospective investors should
due to the improved economic conditions, ample commodities rose. We remain overweight in conduct such investigations as deemed necessary
liquidity and signs of stabilising rents in the commodities for cyclical and structural and should seek their own legal, accounting and
region. We remain underweight in European real reasons including the likely future capacity tax advice to determine independently of the
estate where companies have been forced to sell constraints. suitability and consequences of an investment.
November 2009 Investment International
www.investmentinternational.com
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